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apital flows. The example can be given in context with open economies in developing countries which often experience high capital flight, the decreasing of foreign exchange reserve, and the loss control of the independence of monetary policy because of huge inflows and outflows of capital. The rapid capital flight could direct a country to the crisis of balance of payment, low economic growth, raising inflation, decreasing in savings and resources in financing productive investment. Some of the countries which experienced high capital flight are Brazil, South Africa, and Mexico. Without capital controls the authorities have some difficulty to create an independent monetary policy. In case of interest rate when there is an effort to amend the interest rate, it will lead to unwanted movement of capital. If interest rates are maintained low to support domestic investment then capitals will tend to move out to other country which offers better interest rate. On the contrary if interest rates become high, domestic investment will be declining and there will be transfer of resources from outside country. With capital controls countries may pursue the independent of their monetary policy, keep the differential interest rate, or even protect their currencies from devaluation or speculative attacks.

-. Capital controls are believed to be crucial for development and essential for the enlargement of investment and domestic savings. When countries use capital controls, they are not only able to keep the domestic or foreign finances under the national control but also to lead the domestic savings in relation with foreign borrowings into productive of domestic investments. Capital controls may keep the domestic capital inside national borders by holding private sector from investing abroad. In relation with the use of capital controls on the productive purposes, capital controls need to be assisted with complementary policy measures in form of credit controls. Credit controls are one of the ways for the authorities to control the credit to particular companies or sectors for promoting the economic development to achieve the planned objectives. With capital control, credit allocation can be ensured to be utilized productively. The relation of capital controls, credit controls and industrial strategy can be implemented in the developing countries to regulate the productive investment, high industrialization and to support the income growth (Jessica Gordon Nembhard, 1996).

-. Capital controls have abilities to raise the strength of bargaining of countries to negotiate with their private sector, foreign capital and the multilateral financial institution. Capital controls may support countries to maintain their own right and construct their economic policy so that the bad effects of globalization and the policies of structural adjustment could be avoided. The wise use of capital controls may raise the strength of bargaining of countriesa€™ citizens and working classes. When capital become abroad and lead to global capital flexibility, it will tend to benefit the rich either domestically or internationally. Using the capital controls can be favorable to secure the interests of domestic labor. Furthermore with combination of other policy measures, capital controls may accomplish the equality of economic development with better generation of employment, income distribution and raised public investment.

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